Many economists take a much calmer view of budget deficits than anything you’ll see on TV.
I took a much calmer view as well, but these deficit are ridiculous. I still have a calmer view compared to those who push "we are facing utter ruin", but deficits this large are harmful, and are long term fiscal situation is a major mess.
Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates.
Because of concern about other alternative investments. And also because for the short term, and some would argue mid term, the state of the economy makes inflation unlikely. Which doesn't imply either fiscal sanity or low inflation in the long run.
Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn’t been any new information to justify this sudden urgency.
Here I sort of agree with him. We don't need to slash the deficits immediately. As ridiculously large as they are, the problem is mostly not a short run problem. We need to reduce deficits in the next few years, not necessarily FY 2011. We also need to get a handle on exploding entitlement spending. If we do that we will escape serious harm from the current deficits.
The problem is not so much that FY 2010 and 2011, have ridiculous deficits, the problem is that the spending, and to a lesser extent the deficits, set the pattern for the mid term future, and even a bit for the longer term future. We are going to have large deficits for the foreseeable future unless major changes are made or unless economic growth is unusually good.
The trouble, however, is that it’s apparently hard for many people to tell the difference between cynical posturing and serious economic argument.
That's helped along by all of Krugman's mixing of cynical posturing with his economic arguments. |
